Janet Yellen’s Ticking Sound

This article on Yahoo provides some good analysis on the state of the Fed’s no-exit strategy: no matter which way it turns, there are land mines between that beast and all of its purported save-the-day fiscal policies. Here’s a mouth full of marbles from Yellen on the rate hikes, yesterday, in her semi-annual purple prose to the U.S. Senate Banking Committee.

“The committee expects that the federal funds rate is likely to remain for some time below the levels that are expected to prevail in the longer run because headwinds, which include restraint on U.S. economic activity from economic and financial developments abroad, subdued household formation and meager productivity growth, mean that the interest rate needed to keep the economy operating near its potential is low by historical standards.”

The “headwinds” for which she is so intentionally allusive are the economic contraction in retail and industrial production; lack of a large enough fire under the housing bubble (including new housing starts); and a worldwide financial crisis that Yellen and the Fed, no matter what they do, cannot wash away with wizards and wands. Headwinds, meaning an “opposing” motion for which the Fed bears no responsibility, rather than a fundamental reality as a consequence of years of government-planned economic stimulus.

What Yellen essentially says above is that because of these “headwinds” the Fed committee expects these currently low rates to continue in spite of the fact that higher rates are expected in the “future” (whenever that is), and these current near-zero rates are acknowledged as being, yes, historically low, but they need to be that way in order for the central planners to continue to mange the economy like a boat with its rudder stuck. So essentially, she said nothing.

Every other issue she addresses is stated in words such as “we need to watch,” “we need to monitor,” “we are looking into it,” “very hard to predict.” According to Yellen, the labor market is not deteriorating or sliding or showing signs of recession, but rather it is seeing a “loss of momentum.” And an entire committee sits there on their collective hands. Although I did like the Tweet from Bill Gross that Yellen was speaking from “a 50-year-old textbook.”